Setting up payroll for the first time is really just a series of straightforward steps done in the right order. Rush through them or skip one and you’ll create headaches that take months to untangle. Here’s what the process looks like in Arizona.

First, get an EIN from the IRS if you don’t already have one. Apply online at irs.gov and you’ll receive your number immediately. This is the identifier tied to all of your federal tax obligations as an employer, so nothing else moves forward without it.

Next, register with the Arizona Department of Economic Security for unemployment insurance. You’ll get a UI tax account number and an assigned tax rate. New employers in Arizona typically start around 2% on the first $8,000 of each employee’s wages. Don’t put this off. The state will eventually find out you have employees, and retroactive penalties are worse than just registering on time.

Set up an EFTPS account at eftps.gov for making federal tax deposits. This is how you’ll send Social Security, Medicare, and withheld federal income tax to the IRS. Registration takes about a week because they mail you a PIN, so start early. Missing federal tax deposits triggers penalties starting at 2% that escalate quickly to 15%.

Before running your first payroll, collect a federal W-4 and an Arizona A-4 from each employee. Arizona handles state withholding differently than most states. Instead of a detailed worksheet, employees pick a withholding percentage from a set list on the A-4. You’ll also need an I-9 for employment eligibility verification. Keep all of these on file.

Choose a payroll system that handles tax calculations, filings, and deposits automatically. QuickBooks Online Payroll works well for most small businesses, especially if your books are already in QBO. If you want help getting the system configured correctly from the start, payroll system setup and training can save you from costly configuration mistakes that compound over time.

Decide on a pay frequency. Arizona requires that you pay employees at least twice per month. Most small businesses settle on biweekly or semi-monthly. Pick whichever aligns with your cash flow and be consistent with it.

Open a separate bank account just for payroll. This isn’t legally required, but it makes everything cleaner. Transfer the exact amount needed before each pay run so payroll funds never get mixed with operating money. It also makes reconciliation significantly easier.

Then run your first payroll and make your tax deposits on time. Most new employers are monthly depositors, meaning federal taxes are due by the 15th of the following month. Arizona state withholding follows a similar schedule. You’ll also file Form 941 with the IRS quarterly and submit unemployment reports to DES.

The biggest mistake new employers make is falling behind on deposits. The IRS treats payroll taxes as money you’re holding in trust for your employees, and they enforce that aggressively. Use a system that automates deposits so you never have to think about deadlines. Many Phoenix bookkeepers see new business owners get caught by this in their first year, and the penalties are entirely avoidable with the right setup from day one.